tv U.S. Senate CSPAN June 20, 2011 12:27pm-5:00pm EDT
these issues relate primarily to otc market structure and the viability of u.s. markets. finallily in the policy difference between the u.s. and other regulatory regimes, there are equally significant timing differences between jurisdictions. differences that will go a long way in determining the competitiveness of our country's markets. turning to some of the key policy differences, we believe that the application and effective u.s. law and regulation should be as even-handed as possible with respect to both the u.s. and non-u.s. institutions and regrettably at this point it seems that there will not be equal treatment of u.s. and foreign firms at the institutional level. in addition, our members are concerned about the potentially divergent approaches at the jurisdictional level. it appears that other regulatory jurisdictions are likely to adopt regimes that differ from our own in meaningful and material ways. as i have mentioned, these
policy differences are not generally in the area of systemic risk mitigation. the primary driver of regulatory reform. instead, they are in the area of market structure. here are some examples of the differences. banks operating in the u.s. will be forced to comply with section 716 of the dodd-frank act the so-called push-out provision which has no counterparts in proposed european or asian regulations. we support the removable 716 to resolve the inefficiencies, competitive challenges and increased systemic risks that will surly result from such a requirement. another area of difference is with regard to electronic trading venues or sets. at this point critical components of cftc rules for the sets have no parallel in europe or other major jurisdictions. as noted in greater detail in my
congressional intent in limiting the territorial scope of the new regulatory framework for derivatives. as i mentioned there are also meaningful differences in timing between the various jurisdictions. it appears that the u.s. financial markets will be subjected to a new regulatory framework well before other jurisdictions. this will create an uneven playing field that could cause capital to flee our shores and will be harmful to u.s. markets. to summarize, there are large and growing differences in regulatory reform efforts in the u.s. and abroad. these differences have less to do with systemic risk issues and more to do with the structure of markets. policy differences that impose significant costs but offer few if any offsetting benefits, mainly to decrease liquidity, a reduction in growth capital and the erosion of u.s. competitiveness. these losses will be measured in jobs and tax revenues. the best way to avoid the issues that i have discussed
and to protect the competitiveness of u.s. markets is to work with european and other overseas policymakers to insure strong yet harmonized rules that are implemented along the same timeline. this will reduce the impact of any temporary or permanent regulatory differences between markets and mitigating the damages that these differences will cause to the united states. thank you and i would be happy to answer your questions. >> thank you, mr. ryan. >> thank you, mr. chairman and members of the committee. in my written statement i have responded to the questions you asked in your invitation so in my oral statement i want to focus on three major issues, sifis warrant and special attention. it is my hope congress will agree with me and press answers to questions i will raise with combination of further hearings by this
committee and additional study by by policy-makers here and globally. first, who are the globally systemicly important financial institutions the so-called gfis the including the capital surcharge debate you had this morning and, impacts what actions should be taken with respect to such firms. most of us think we know the firms preordained to make the list but at this moment no such public list exists. we do know there is a long list of firms who do not want be in the gsifi club. there are related questions that need to be asked on this topic. one, who decides whether a firm should be on the list? two, is this a domestic decision or global decision? three, should countries decide without a g-sifi have
a say in the process? four, what women be the criteria and factors used to make these determinations? five, will the, will this process be transparent, fair and subject to review and appeal? none of these questions have been publicly answered. second major question we'd like to propose and you talked about this all morning, regulators have spent a lot of time focused on the need and size of a special additional capital surcharge on g-sifis to mitigate systemic risk. like the first question, this one has several related questions associated with it, such as how large should the surcharge be, what types of capital should qualify to meet the surcharge and will there be any mitigating factors or actions which might lessen the need for a surcharge?
since the financial crisis occurred policymakers, regulators, the financial services industry and consumers have all changed their behavior. we have been very busy making the system changes but the industry and governments have failed really to understand or assess the total aggregate impact of all of these actions. it's important for you to understand the enormous amount of change taking place in our financial markets today. other witnesses will provide you with definitive figures but, it's really important to note that in the u.s. we've raised more than 300 billion of common equity while repaying t.a.r.p. with a $12 billion profit. the largest banks have significantly reduced their leverage and loan reserves have increased by over 200%. now i can go through a long
list but you all know the list of dodd-frank actions which we're now trying to implement. sifma alone filed over 100 comments during this regulatory process. while we're working through the dodd-frank changes which significantly modify the banking activities in the united states, we're also faced with comparable changes in basel which we're trying to work through. one point i'd like to make that is important, i want to echo a comment made yesterday by the general counsel of the fdic, mr. kremenger which was also discussed this morning about the question of resolution of large systematicall systematically-important institutions certainly in the united states. we worked very hard with this committee to make sure that legislation was done in an appropriate fashion and we're hopeful that both in the united states and
outside the united states that that resolution scheme is recognized as something that is viable. so my ask as to number two, the question two is, we'd like congress and regulators to postpone any decision on g-sifi capital surcharge until the industry has had time to implement all of the regulatory changes making their way through the system and the effected parties which include private sector and the government conduct a study to see what impact this surcharge has actually on the financial institutions and on the economy. now, mr. chairman, one last comment. in your letter you asked us to specifically comment on convergeance, accounting convergence. i can say that from a sifma standpoint we are supportive of the convergence of u.s. gaap and international
accounting standards. we are concerned with the application of isb standards on offsetting and we welcome the recent pronouncements by the u.s. standard-seter, the fasb, supporting the u.s. gaap standard that allows netting. again thank you for holding this hearing and asking me to testify. >> thank you, professor scott. >> thank you, chairman baucus and members of the committee. i am testifying in my own capacity and can not purport to represent the views of any organizations which i'm affiliated although much of my testimony is based on the work of committee on capital markets regulation. indeed for the last six years the committee has been tracking and making recommendations to strengthen the competitiveness of our capital markets. let me address the issues you have called on us to comment on. let me begin with the volcker rule.
the volcker rule was passed with the hope of chairman stroller that other nations would follow us. none have. this rule was ill-advised from the start because proprietary trading was not responsible for the financial crisis. indeed it was a source of profitability. now it could have the effect of making u.s. firms less competitive internationally. there is still time to dampen its potential effect however because defining the precise boundaries of prohibition falls to regulators. they can and should take a narrow approach to deintooing proprietary trading to preserve our competitiveness. but the derivatives rules, there are major areas in which the u.s. proposals diverge from the proposals of the e.u., our major competitor in this area. the differences include standards for membership in and ownership and control of clearclearinghouses, the scope of the end user exemption and possibly accounting standards.
we should put aside for now the initiatives we are faking that are in conflict with the e.u. and. thee areas can be defined in concert with the e.u. and should be be project of efforts to harmonize our approaches. we have been implement the nonconflicting initiatives on appropriate timetable. as you know the cftc has called for comments on proper sequencing. we may have to make some compromises as will the ei but it is not tenable for us to say our way or highway. for capital requirements we have now on the third version of the capital accord. the basel capital accord. although it is very difficult to precisely quantify the impact, the economic impact of basel iii we know it will affect gdp in only one direction, down, perhaps up to $951 billion in the u.s. alone between 2011 and 2015 according to
one estimate. although basel iii is an international initiative, it has differential impact in different countries. the testimony earlier today of acting comptroller of the currency walsh and governor tarullo frankly acknowledges this problem. beyond the uniformty problem we should have learn ad big lesson with our experiences with basel 1 and basel 2. the ability of basel to determine the right amount of capital for a given risk is highly questionable. basel iii is not a silver bullet. far from it. in my view, we should use the long, full phase-in time provided by the basel iii rules to reexamine how these rules can be more effected an implemented in a fashion to minimize differential impact. next i want to discuss designating sifis or systematically important financial institutions. dodd-frank requires fsoc to
designate non-bank firms as systematically important and subject to fed supervision along with the $50 billion plus banking organizations which are already subject to fed supervision under dodd-frank. other countries are going through a similar designation process. different approaches to designation and different sifi surcharges could have a major competitive impact. thus we should have a global approach here. our national process should be tightly coordinated with the work of the financial stability board, the operational arm of g20. finally, resolution of failed financial firms remains an important and difficult issue with competitive implications. chief among these is that diverge ability positions on bailouts will alter of cost of capital. countries more willing to bail out banks will lower their cost of capital.
we learned this from our competition with japan before its lost decade. furthermore, many large banks have significant cross-border operations and their failures can after affect all of the countries in which they operate. some redo the assets at local banks to protect local creditors. those banks could get a competitive edge as well. we should continue to work with the fasb to achieve internationally coordinated approach to these resolution issues as possible. thank you and i look forward to your questions. >> thank you. mr. zubrow. >> thank you, mr. chairman and members of the committee. my name is barry zubrow and i'm the chief risk officer of jpmorgan chase. in the wake of the financial crisis numerous steps have been taken to reduce systemic risk in u.s. banking. since some of my testimony was quoted so extensively earlier today, i won't repeat those portions now.
however, the important lesson to draw from all the actions taken in the last few years is that capital is one tool but certainly not the only tool, nor, a cure-all, for insuring there is not a recurrence of a financial crisis. jpmorgan chase is not trying to avoid regulations but we do have a, do have serious concerns that the regulatory pendulum has swung to a point that risks hobbling the competitiveness of our financial system and of our economy. basel iii is a dramatic increase in capital standards focused, exclusively on the largest banks. it focuses particularly on trading and other assets likely to produce systemic risk. at this point the best course for the system is not adding a surcharge on top of the basel iii standards but
rather insuring that liquidity, derivatives and other rules are written right and applied globally. one year after dodd-frank other countries are still debating whether to follow suit and there are indications they will not in many areas. lack of international coordination on derivatives and the potential for extraterritorial application of the u.s. rules could prevent u.s. firms from serving our clients overseas. there is already evidence that basel iii will not be enforced this stringently abroad as it is here. nowhere has change been more profound than in the area of capital where u.s. banks face a dramatic increase under basel iii. and i should emphasize, that these increases effectively apply only to the largest banks. to illustrate, jpmorgan chase entered the
financial crisis with capital sufficient not only to weather the crisis but also to make acquisitions and to continue our lending activities. the new basel iii rules would require us to hold as much as 45% more capital than we did during the crisis. let me be clear. jpmorgan chase supports basel iii capital standards. however, we believe that a g-sifi surcharge on the largest u.s. banks would be excessive and could impede economic growth. draconian capital requirements come at a cost for u.s. competitiveness and economic growth. requiring capital at a level above basel iii will force large banks to either reduce their balance sheets, increase prices, or abandon more capital-intensive activities.
for example, we estimate a hospital requesting a standby letter of credit could see its costs go up by as much as 30%. or a small mid-market client could see increases of as much as 20% on a revolving line of credit. in conclusion our holistic approach to risk management was one of the key reasons jpmorgan weathered the financial crisis as well as we did. my responsibility as chief risk officer is to look at all of the bank's activities across all markets. we believe the fsoc was intended to serve in effect as the chief risk officer for the financial system. analyzing and coordinating the impact of regulation on safety and soundness, but also, on economic growth and competitiveness.
we believe that before any capital surcharge is imposed, the fsoc should review and report on the global regulatory reforms that have already been enacted and their impact on competitiveness. whether existing capital standards are being evenly applied and the cumulative impact of existing regulations on safety and soundness as well as economic growth. we would expect that such analysis would demonstrate that a g-sifi surcharge is unwarranted. thank you very much and i look forward to answering your questions. >> thank you, mr. zubrow. let me say that ranking member frank acknowledged that he only read small inserts which are most favorable to him and, we pointed out some of the things that were not so in
line with -- >> we appreciate that and i'm sure that he and others on the committee will take my testimony in its entirety. >> and, actually, since he lyings your testimony so much, i don't think we'll have any problem getting him to go along with some of these suggestions. >> we certainly hope he will be as enthusiastic about the conclusions as about the premise. >> thank you, thank you. mr. silver? >> yes, thank you, mr. chairman. good afternoon. i appreciate on behalf of the afl-cio and americans for financial reform the opportunity to testify. the americans for financial reform is a coalition of over 250 organizations which represent well over 50 million americans. in the age of global markets any serious effort to insure that we do not repeat the experience of 2008 must include the establishment of an international regulatory floor. otherwise, every country's financial institutions are vulnerable to contagion from
radically unregulated markets. as iceland, ireland, the united kingdom and the united states proved in 2008. however, minimum standards are inevitably weaker than more effective national efforts. that's why they are called minimum standards. the united states for example, has moved more rapidly on derivatives regulation than europe has but has been less aggressive with private pools of capital like hedge funds and private equity. we have been faulted by european regulators for the weakness of our approach to regulating executive pay in financial firms. and so while we hear this afternoon about the possibility that business would leave the united states because of this the strength of our regulatory effort, over in europe, parallel threats are being made by financial activity moving to the united states as a result of the strength of european regulatory efforts. nonetheless, today the big banks have come seeking help from congress yet again. they say that dodd-frank is too tough compared to foreign regulation. now it seems odd that a
group of firms that the american public so recently rescued from imminent bankruptcy, now, amid 9% unemployment and after seven million foreclosures, after record bonuses and amid rising ceo pay, think that they are the people whom congress needs most to help right now. nonetheless, here we are and i will now address the bank's specific arguments. on derivatives we have heard that by requiring the capital be posted and there be disclosure on pricing we'll deriff derivatives trading from u.s. institutions. this type type of argument has been used to virtually oppose every effort to regulate finance in the past century or perhaps even longer. it sounds plausible but it is historically wrong. as a general matter, cap capital markets flow to regular lear where you they have confidence in counterparties and benefit from transparent pricing. radically deregulated markets attract brief bubble before their inevitable comeuppance. in addition there are some kinds of derivatives businesses that we do not want.
we do not want the next aig, the next seller of bond insurance without any capital to back it. to be a u.s.-based firm. we should knot want the united states to retain a dominant position in derivatives by guarantying that derivatives dealer monopolistic profits at the expense of our real economy. we have heard today that the stroller rule and section 716 of dodd-frank will impair the competitiveness of u.s. financial institutions apparently by lowering their rates of return. this argument ignores the basic principle of investing seeking higher returns expose as firm to greater risk. moving up the risk return curve is not a good idea for too big to fail institutions though it is in the interest of the executives of those firms with stock-based compensation who benefit from the heads i win, tails you lose nature of allowing systemically significant fdic insured firms to place bets in the securities markets. on capital requirements the basel iii process envisions basically one size fits all risk based capital
requirement system back stopped by an absolute leverage limit of 33 to one, extraordinary high level. here, congress should ask do we want the united states to have a robust, size-based system of capital requirements for our banks or do we want to be no better than the global minimum standard that does ott impose higher capital requirements on larger institutions thereby not addressing the problem of too big to fail? finally, we hear that we can not implement the resolution authority process envisioned in dodd-frank until we have a comprehensive international resolution authority. this argument is a red herring and will be used in the future to promote new bailouts. it is a red herring because the resolution process in dodd-frank is fundamentally focused on the parent company, not its foreign subsidiaris. break up and wind down of the failed u.s. parent occurs entirely within u.s. law. real progress has been made toward a global financial regulatory floor. great credit goes to the witnesses in the first panel, particularly governor tarullo and his colleagues
at the fed for their work on basel iii. a minimum standard is just that, a minimum. the measure of u.s. financial regulatory policy should not be whether we manage to meet the global minimum. the measure should be whether we have insured the financial system is a contributor to sustained, balanced growth in our real economy. international deregulatory whipsawing and infinite delay of the kind recommended today by my fellow witnesses may temporarily increase some bank profits but the price will be another cycle of economic crisis and job loss. thank you. >> thank you. and thank you all for being so patient. as we left, i think this morning to go vote and finally came back. the chairman and the ranking member had agreed that we would not start at the top again but would go to those to are here and did not have the opportunity to ask a question this morning. so we will go to
mr. lictmeyer from missouri, recognized for five minutes. >> thank you, madam chair. mr. ryan, with regards to the foreign account tax compliant act, facta, i wanted to make to miss brainard about it, but since it is affecting you and your industry i would like to pose a question to you with regards to, under facta the firms will be required to report to the irs on u.s. clients or face heavy withholding tax on u.s. assets and treasury bonds. as response many have indicated they will either sell all of their assets, form subsidiaries that will not touch u.s. assets or stop buying u.s. bonds. this will undoubtedly hurt companies not only in my state but across the nation and we're curious as to what steps that you would see that the treasury department needs to do to prevent facta
from having negative impact on u.s. capital markets. >> and i'll be able to move quickly on this issue for you because we have multiple committees working on this issue and we have not come to a conclusion. so what i'd like to be able to do is to submit our views for the record after the hearing. >> okay. it's kind of a, it could have a major impact on the ability of investments being made by foreign entities and americans who are purchasing through their foreign entities into this country and that can have a dramatic impact on the amount of capital available in the marketplace if suddenly the foreign entities stop purchasing it. i think it is a pretty pertinent question to the title of the hearing today. so i would appreciate that. with regards to the fiduciary rules coming out of dol of all places with
regards to ability of some securities folks to be able to sell different types of securities, what kind of, where do we think we need to go with that one? >> you probably look at my resume' because i repotted myself many times, during the reagan administration i was solicitor of labor. i've had a lot of experience with erisa and a lot of experience with the dol. we have spent quite a bit of time with the department of labor and other bureaus of the government basically trying to get the department of labor to withdraw their proposal and repropose. we'd like to see it better coordinated with other similar work that's taking place now with the securities & exchange commission as a result of dodd-frank and we are especially concerned about their effort to, for the first time ever, regulate at
the department of labor, iras. >> okay. professor scott, you deal a lot with your director of program of international financial systems at harvard. just kind of curious. what is your thought process on the, you know, with dodd-frank, seems as though we have lot of more connectivity between all the different larger institutions. they have gotten bigger and by putting other weaker institutions absorb, to me they have gotten bigger and weaker. in discussing this with a number of panels over the last several months we've also seen the connectivity between our banks here and those countries over in europe especially those that are in trouble. this morning we saw with greece, headlines in the paper with greece, indicates one article had 50/50, chance they would default. moody's made a comment this morning that 50/50, chance they would default . what do you see the impact of that --, i know we're talking about regulations here going that direction and impact of them coming
this direction and our ability with this dodd-frank bill which caused connection activity of all these banks to be even greater and connecting over there and how will that impact everything and can you kind of shed some light on it? >> you're focused on the issues going on in europe and what the impact? >> also we have regulatory issues here that, i think impacted that by tying everybody together to even greater extent. >> i think american banks hold a lot of sovereign debt of the countries that we're talking about directly or indirectly or have written derivatives to such debt. so i, i have not studied this in depth but i would believe that there would be, if we're talking about any kind of restructuring or default of that debt, which of course in the mix of argument at the moment, that we would expect it would have some impact on our banking system. that being said it would have a lot more impact on european banks in terms of
their holding of this debt. so, you know, overall, whether it would rise to a level of real concern i don't know because i haven't looked at the statistics enough but, i would think we would have some concern with the impact on our banking system, whether it is severe or not i don't know. >> i see my time is over but i think it would have a pretty significant impact when you have i think the latest figure i saw was $1.3 trillion worth of business from our banks in those countries bonds. that's pretty significant and if the domino effect keeps going we're going to be at the end of this line of dominoes. so thank you, madam chairman. >> thank you. mr. miller? >> thank you --. >> five minutes. >> i joined this committee in 2003 and remember that by the end of 2006, certainly early 2007, it was very apparent there was enormous problem in the subprime, in subprime mortgages. that there would be enormous number of defaults.
enormous number of foreclosures. that because house prices had stopped appreciating it would not be possible for the homeowners to sell their homes or refinance their homes and we were assured by the financial industry throughout 2007, really through september of 2008, that there was nothing to worry about. everything was under control. and because of that experience i have not always known who to believe since then. and i may have very well have disbelieved some things that people told me that were true as a result of that experience. but it is very hard to tell what the liability of some of the banks really is for what has gone on in mortgage securitization. mr. silvers, you may change hats for a second. . .
>> potential violations. what is your current estimation of the potential liability of the securitizers which were the biggest bank for chain of title issues? >> well, as you said, the congressional oversight panels report on this matter commit to the panel which i was the vice chair of. there were certain key issues it was not possible -- we could not answer. partly because we did not have the invest investigative
authorities and complex legal answers. however, the statement that you were quoting, which i believe is the case, is if it turned out to be true that systemically, the title was not properly conveyed to the liens on the properties that have been securitized. and if it was also true as a matter of law that the lien did not fall in some equitable fashion to note that -- and then that would implicate a series of very significant issued associated with the doctrine in our tax code. it would also implicate the questions on the new york trust law. in all of those things went wrong, wrong from the perspective of causing light and turned out effectively the properties in the securitization trust did not have -- did have not liens, they were not -- the trust did not have liens. >> the mortgage-backed security.
>> they weren't mortgage-backed. turned out the mortgage-backed security were not mortgage-backed. it turned out it could be cured as a result -- without occurring vast tax liabilities for reaching the structure. then potentially between the tax liabilities involved and the possibility that the holders of the mortgage-backed securities would be able to call upon their right to repurchase the loans at case value that you would be talking about liabilities back to the -- back to the securitizers of the institutions that put those trusts together in the multiple hundreds of billions of dollars. well in excess of the numbers that were sighted by my fellow panelist. >> how has jpmorgan chase reserved for the potential liabilities. >> i think he responded to your
question. there's a long chain of different things that might have to have happened in order for that liability to actually have -- come about and so, you know, we certainly do not think that that whole long series of events actually, you know, did occur. and i would say if -- in a similar situation. >> it's a long shot. you have reserved it at all as a long shot. >> that would be correct. >> let me ask you about other litigation. there are a couple of insurers of the bonds and another that has sued jpmorgan chase really for conduct of bear stearns, that bear stearns sold mortgage-backed securities and pursued claims against the originators of the mortgages to buy the mortgages back and instead of making them buy it back, took a monetary damage --
monetary damages. even though they no longer had equitable -- excuse me beneficial title and beneficial ownership of the mortgages, they kept that money and said not a word to the investigators. that lawsuit appears to be pending. it's moving to trial that fall. how has jpmorgan chase moved for that litigation? >> i'm generally familiar with some of the litigation in that area. i don't know off of the head the exact way that they have assessed the potential and possible liability under that case which as you noted originated originally with activities that bear stearns pursued, but will certainly be happy to get back to you and give you a specific answer. >> the gentleman's time has expired. the gentleman from arizona, mr.
chic core? >> thank you. our favorite pop culture phrase is regulatory arbitrage. i want to start with mr. scott, the international, will you give me international, but also domestic examples. >> examples of regulatory arbitrage. we've had many in our history. when the united states imposed very tough requirements on banks in this country in the '70s, we spurred the creation of londonism international backing sign. when the united states in my view over regulateed it's equity capital markets and the committee has documented extensively, a lot of the business in the equity capital markets moved aboard.
and particularly to london. again and the severity of this is once you get whole businesses moving some place, even if we readjust our policies or london gets more aggressive on theirs, people don't come back. they stay where they are. i think we've had a number of very important examples of regulatory arbitrage in our history of the financial system. >> madame chairman to the example, congressman miller that was speaking and kicked off one in my head. i can actually sort of think of something domestically. tell me if this was true. it might be of my friend from chase. if i'm in a state that has the 91 day trust default compared to a state that may have used a mortgage document that has a six month right of redemption,
should there not be difference between the 30-year home loan if they have a regulatory arbitrage just in the -- might threaten my cost of foreclosures and the liabilities. >> i think that you are certainly correct that, you know, given the application of, you know, individual state laws and in some instances individual county laws to, you know, the home financing marketplace can have an impact upon, you know, how reassess risk and ultimately would respect that risk to be reflected in the marketplace. i think, in addition, it's worth noting that, you know, going back to your question about, you know, historical examples of regulatory arbitrage, there certainly was a significant amount of regulatory arbitrage in the united states through the disproportionate oversight of different financial institutions and certainly one of the things that, you know, we are now have
is the fact that the federal reserve board has overall, you know, responsibility for oversight and supervision of the large financial institutions in order to avoid that sort of arbitrage. i would sight on the international side, you know, that one the things that we're very concerned about is a form of regulatory arbitrage between different countries where different supervisors and regulators will apply different standards for measuring risk-weighted assets under the basel iii accord such that the application of models and analysis of risk-weighted assets may result in a lower rating or a lower ranking of risks in some jurisdictions than what we would anticipate would be applied here in the united states. >> madame chairman, you beat me
to where i was going to go. okay. if i had that different risk ranking, how much of that is in the quality of enforcement? if i have a derivative trade or home mortgage. if i have a different enforcement in the rules in greece or some place in europe compared to if i do in iowa. how much is -- will you look into when you are doing risk analysis, not only saying okay we lined up on basel iii rulemaking, but we believe there's a failure of enforcement. >> i think that's a very good question, congressman, and certainly that does need to be a factor in our analysis of, you know, how we assays -- assess risks that we take in different jurisdictions and certainly, you know, in the potential for enforceability of contracts around the world. >> okay. madame chairman if anyone else
has something to educate us. >> mr. ryan. >> chairman, thank you. for us i think this is not specifically regulatory arbitrage. but we're in the middle now of trying to implement dodd-frank which is a massive assignment for the government and for the industry. and dispaired application of dodd-frank by various u.s. agencies is a real issue. we've recently sent a letter to secretary geithner outlining over 20 absolute dead bang conflicts in regulations that are now being offered by various u.s. agencies. and to mr. zubrow's comment about fsoc. we thought that's why fsoc was created within dodd-frank to resolve those types of issues.
you don't have to go beyond the borders of the united states to find conflicting applications of the same wand. >> thank you, madam chairman. >> gentleman's time has expired. mr. carney from delaware, you are recognized for five minutes. >> thank you very much, madam chairman. i just joined the hearing. i just walked in. so i missed all of the lead up to this. but i was present here this morning when we had the panel of regulators and the discussion most of the discussion this morning was on the accumulative effect of dodd-frank regulations and so on, capital, liquidity requirements and sheila bair in particular said that she thought the capital requirements were on the low end. and the governor from the fed, mr. tarullo, i spoke with
afterwards, he suggested that he agree with. we had some back and forth on that. this question may not be germane to the discussion that proceeded my arriving. we have some expertise on the panel and i'd like your view on that question if i could. please. >> the answer to this question is not simple in part because of the exchange that just occurred. if your capital requirements -- if you are looking at risk-weighted capital requirements, and you get into the inter of that and risk weighting is being used to pretend that you don't have risks that you do have under basel ii around mortgage-backed securities, for example, then you may look like you have really strong capital requirements, but you don't. okay? with dodd-frank there are -- you know, some of this is still being put in place. there are some very important
principals in dodd-frank that are very good. one of them, for example, is size -- at least dodd-frank embodies the principal of size-base the capital requirements. we just learned we like to bail out large institutions and charge them higher capital. that counterbalances for the fact that their cost of capital is subsidized by the market perception they are going to get bailed out. >> so that's a good thing. >> if i can stop you there. one the questions that i had of governor tarullo is just that, the people on the borderline and whether they would be subject to the same capital requirements if you will. the answer was no. that there was degradation there and you are addressing that. >> i think sliding scale capital requirements are a really, really good idea. i think that a cliff structure or buffet structure.
-- binary structure. when they are setting the rules, they are likely to be exempted. when the crisis comes, they are likely to be bailed out. when you have an approach, the kind that dr. tarullo spoke to you about, you are more likely to have a consistent approach. >> others. please. >> so i -- i think that the -- >> by the way, your name and your paper was quoted profusely by the ranking member, i might say. and somebody asked whether it was -- came on valentine's day with a box of chocolates. he said no the candy didn't come with it. i said that in a complimentary way. >> we did have some comment about that with chairman baucus earlier when the panel started. and i think that it was
acknowledged that the ranking member, you know, selectively quoted from the paper. we hope that he will, you know, also endorse the conclusions of the testimony, you know, as well as the premise of it. i do think that the question of capital is a very important one. as we've tried to say in the written testimony and as i said, you know, here earlier this afternoon, you know, capital is one tool in the overall framework of how large systemically important financial institutions have to be regulated and managed. but it's not the only tool. and the basel iii capital levels that have been -- that are in -- being enacted 7% level of tier one common equity, you know, are much larger than what any of the financial institutions operated
under, you know, going into the financial crisis. for jpmorgan chase, that would be an increase of, you know, roughly 65% to meet the basel iii standards above what the prior minimum standards were. and, in fact, you know, we think that the basel iii -- the basel committee and the implementation of basel iii, you know, has done an enormous amount to both increase the amount of capital in financial institutions, but also the quality of that capital which is equally important. and, you know, in our view at this point in time to add an additional sifi surtax on that of that is both unnecessary and also has the opportunity to threaten growth in the economy which we think would be very dangerous to the financial systems.
>> gentleman's time has expired. the gentleman from illinois, mr. manzullo is recognized for five minutes. >> thank you, madam chair. by a shows of hands, would you tell me how many of you there are that agree with this statement. proprietary trading and private equity hedge fund investing were not responsible for the financial crisis and indeed were the source of profitability to banks during the crisis. the losses to banks resulted from bad housing loans and investments in pools of those loans traditional banking activities. how many would agree with that statement? mr. -- >> i'm glad they are enforcing my position. >> you got it. those are your words on page four. >> sound familiar from prior testimony. >> did you know how deliberatively he raised his hand to?
>> it's really a pail -- >> is that what it is? >> no chance. but professor scott, i -- you know, that's a very simple answer to a very complex issue. and i agree with that 100%. if the fed had exercised appropriately it's jurisdiction over instruments and under writing standards and not waited until october 1st of 2009 to set forth the rule that requires written proof of a persons earnings, would we be in this mess now? >> i'm not really prepared to answer that specific question. i think the thrust of it is that the standards for making loans
were low. people got caught up in the bubble. this is happened over and over in the history of banking. people get enthusiastic, they lower the standards, they think things are going to keep going on as they are, and boom, there's a burst. people are caught short. it's almost always in lending. which is the core function of banks, okay? so the point that i was making is this is still another crisis about when. it's not a crisis about private equity, hedge funds, or proprietary trades. >> you state that so correctly. the -- i'm sorry, you are in the -- >> no, go ahead. >> the -- we had before this committee and before the house in 2000, gse reform bill and didn't go anywhere. 2005 we had gse reform bill with the royce amendment that really
would have tightened things up with regard to lending. that didn't go anywhere. it had passed the house but didn't go into the senate. we had numerous hearings here with the president of fannie mae shows how they cooked the books in order to make themselves eligible for the pensions down to two or three mills to come within the particular window. it appears to me the evidence was out there. both president bush and clinton encouraged them to buy up the subprime into the loans and packages. and the reason that i quoted your statement, i'm glad you are recognized that you are indeed the author of that senate on page four, is the fact that that really is the core reason for why we're in the financial
crisis today. dodd-frank addresses a lot of issues and that's fine. and they are interesting. but do you believe that the power existed within the federal agencies that they could have stopped these bad loans from taking place in the first place? without any further legislation? >> definitely think they have the power to maybe not stop them, but certainly -- >> curing -- >> -- >> raise the essence of bank supervision. if a bank supervisors feeling the bank is taking too much risk, not controlling it's risk, it's job is to go to to the bank and say so. the bank works with the regulator to address it. they didn't do that. on the other hand, congressman, we were all in a housing crisis
euphoria. it's looking back it's obvious. but at the time if you really believed housing crisis, we're going to keep going up. which almost everybody did. the pressure to raise those standards was not very high and there would be political pushback in any event if you tried to lower the standards in a way that deprived certain people from getting loans. so i think that was the reality of it. >> appreciate that. wasn't that a great answer? >> gentleman's time has expired. the gentleman from texas, mr. conseco is recognized. >> thank you. you mention the rules between the european union and the united states between regards to
interaffiliate transactions, if i understand correctly, as it currently stands in the united states an institutional helping one the affiliates hedge the risk through derivatives would essentially have to post margin to itself; is that correct? >> that is currently the case where the proposed rule standards. so in the e.u. currently, the commission is considering exemptions for certain types of interaffiliate transactions. these are effectively two subsidiaries of the same parent company president in the u.s., such an exemption has not yet been given, which could result in two parts of the same firm having to clear the trade margin between themselves, yes. >> we could end up with derivative trades instead of being conducted between the company and affiliate, they are
conducted between nonrelated companies if the cases where an affiliate has to post margin with it's parent company. thus increasing systemic risk and a flight -- flying in the face of what dodd-frank was intended to do. is that correct? >> it certainly would increase costs and not directly affect systemic risk. if such margin, that would be taking money off of the -- off of the institutions banner sheet that could have ordinarily have been put to other uses, such as lending or other things that so happen and beneficial effect on the economy. >> in your opinion, is this worthwhile? >> no. >> and does this rule make sense? >> this rule needs -- no, this rule does not make sense to me. >> thank you. mr. ryan, do you feel the same
way? or do you have another opinion? >> no, i agree totally with mr. o'connor. >> okay. mr. zubrow, is that your answer also? >> congressman, that is correct. i think that that rule does not make sense. i would also point out, you know, i think that your example of how it could lead to an increase in systemic risk, you know, was really predicated on the assumption that instead of having a firm engage with transactions with affiliates, instead a firm might have to in effect do a three-legging transaction where it goes outside of its affiliates in order to lay off certain risks as a way of transferring risks within, you know, amongst it's different entities which would obviously increase the overall
exposure to, you know, risk and credit risk across the system. in addition, i think, you know, as you are aware, there's also proposals, you know, that are competing between what the u.s. has proposed and what it appears europe is likely to propose as to the types of collateral and margin that could be posted from different transactions, and the u.s. proposals, you know, limit the amount of margin that would be posted to, you know, instruments that are basically denominated in u.s. dollars so therefore if there is extraterritorial application of the u.s. rules, you know, to foreign entities, be they affiliates or end customers we would be asking european clients to be posting, you know, u.s. dollar securities as opposed to, you know, european bond
collateral or government collateral or currency which would obviously be the natural currency in which they would have their assets. >> let me just clarify what was just said. even if these rules were harmonized across borders, is the restriction and cost to increase on affiliates -- on affiliate trades worthwhile in your opinion? >> if they are harmonized in a way that requires posting of margin in between affiliates, then we would not think that was worthwhile. >> thank you very much. i yield back my last nine seconds. >> thank you. i recognize myself for five minutes. and this question is for mr. o'connor, and i think mr. ryan has had some part of this in his statement. does the schwab pushout
provision increase market liquidity and impose safety and soundness, increase systemic risk, and make it harder for the large banks to resolve? are you aware of any country besides the united states with a sophisticated derivative market that's planning to adopt such a pushout requirement? >> thank you for the question, congresswoman biggert. answering the second question first, no, i'm not aware of any jurisdiction that is adopting a rule that would be similar to the pushout rule. yes, i agree with the points that you make. namely, requiring banks to move parts of the businesses outside of the banks into differently regulated entities adds to systemic risk in the sense that two entities now need to be managed by the bank from liquidity in a capital point of
view and also customers of the bank that typically could engage in derivative transactions under one agreement that netted credit effects would now have to trade across two master agreements and therefore there's an increase in counterparty credit risks within the market which adds to systemic risk. >> wouldn't this put us then at a real disadvantage in the global economy? >> in my testimony, i included that as one the examples that is -- puts the u.s. as a competitive disadvantage, yes. >> thank you, mr. ryan. would you like to comment on that? >> well, i concur totally with mr. o'connor. it's interesting at the end result here from not only dodd-frank but some of the things that are going on in basel in effect we are are -- we pushing risk out of the highly
regulated, highly capitalized environment and into shadows and it's predictable that in the future that will be an issue. so as to your question, could it or will it increase systemic risk? it's entirely possible. >> should it be repealed? >> we're not pushing for any repeal of dodd-frank right now. the industry is really -- >> i mean the section. >> 716. you know, we were against it totally during the enactment of the statute. if it disappears, we'd probably be very happy. >> okay. then mr. zubrow, your testimony was -- made a lot of this morning. i would just -- on page two of the testimony you talk about the regulatory pendulum has swung to a point that our risk is hobbling in the financial system and economic growth.
you say that u.s. policymakers should focus on how much the regulations they proposed collectively reduce risk taken by financial firms and how this collective impact is likely to result or reduce the economy and job growth. and how many of these regulations have been rejected or referred by other countries. could -- what's putting u.s. firms at a competitive disadvantage? is it -- does fsoc have anything to do with this? is the fact that fsoc numbers are not coordinated or thinking in the global marketplace? i have causing problems. >> madam chairwoman, i think that, you know, you are exactly correct. the fsoc has a very important role to play here. and it is really within their per view to be able to analyze
and assess what is the accumulative impact of all of the regulations that are being proposed under both, you know, dodd-frank, but also the additional regulatory activities that the different supervisory agencies, as well as the basel committee are imposing, you know, upon the financial system. and so, you know, i think that it is very important that the fsoc do a study in order to really be able to assess what that accumulative impact is and have we accomplished enough already in order to feel comfortable that we have a much safer and sounder banking system. there's obviously -- it's all going to be in how the rules are ultimately promulgated and implemented. so it's very important that we constantly step back and look at what that accumulative impact is and how it's impacting, you
know, the economy. >> thank you. thank you. and with that, i would ask unanimous consent to enter into the record a statement for the record by the institute of international bankers without objection. so ordered. and i think that we will give you a rest here. we've been here for a very long time. unfortunately we haven't had probably as much time as we would have liked. i think we'll remember maybe sometimes having such an important hearing on what we call getaway day is not the best idea. we are thankful that you stayed and gave such great testimony. we appreciate that all we've had to say. i would note that some members may have additional questions for this panel which they may need to submit in writing. without objection, the hearing record will remain open for 30
days for the members to place their responses. with that, the hearing is adjourned. [inaudible conversations] [inaudible conversations] [inaudible conversations] >> students from around the country are here in washington this week for conference looking at the legacy of ronald reagan and the workings of the federal government. we'll have live coverage today from a panel from that conference looking at constitutional checks and balances and what they mean from the realities of governing.
speakers include the chief council, former chief of staff, first lay by laura bush, and assistant attorney general. u.s. senate is back today at 2 p.m. they will be in morning business after 5. no voted expected today. on the senate's agenda this week, a vote on a district nomination in oregon, also a debate in leon panetta to be defense secretary. also in the senate, work in the bill reauthorizing economic development programs. live coverage of the senate here on c-span2. the house also this week will work on a bill --
>> host: front page of the "l.a. times." pointing out some key republicans questioning the role in libya and afghanistan. the move that others call isolationist. and how much the operation is costing us. a piece inside "usa today" by senate congressman. front page of the atlanta constitution is back in the work force. it doesn't end the anxiety. new problems confronting unemployeed.
>> host: let's begin with the focus this morning on this story inside "usa today". in this one sentence really caught our eye. next year's presidential election is shaping up as a classic contest between competing knee res about how to deal with the nation's two towering economic problems. lowering the 1.9% unemployment rate and the record deficit. those issues are likely to dominate the 2012 campaign. it also dominated the sunday
morning discussions beginning with senator mitch mcconnell who made his appearance on cbs's "face the nation" yesterday. >> i think what they are looking to see what we will do is do something about the debt. whether we're going to do something about our annual deficit and the debt. that's the real test. that's what standard in moody's is looking for. if we can't do something really significant, that's a plan that includes entitlement. you cannot ignore the entitlement reform. bill clinton said that, the president and vice president, everybody knows you have to tackle title reform. if we can't do that, we'll do a short term and have the same discussion again in the fall. >> host: mitch mcconnell
appearing on "face the nation." how do you deal with the unemployment rate, and also reduce the definite. as the vice president continues to come up with a package and also to reduce government spending. christian science monitor looking at unemployment and presidential politics getting back to 1940 when it was 14.6%. although franklin d. roosevelt winning by 10% of the vote. the unemployment rate was 4.8%. lyndon johnson re-elected. in 1966 --
>> host: that's the question. bob from new york. good morning. >> caller: good morning. thank you so c-span. >> host: i heard recently, i believe it was on c-span within the last week or two, interesting statistic that for every billion dollar of trade and balance that we have, for example, what is it $250 billion a year with china or 270, for every billion of a trade imbalance, it's equal to and costs 13,000 u.s. jobs. by the government and by our elected officials not addressing the trade imbalance with some of these asian nations, it's just disingenuous on their part.
and the other for not dealing with the trade to bring millions of the jobs back to the united states. if i can finish, i have a plan to put people back to work very simple. as far as business liability insurance and workers compensation insurance. if there was some legislation passed that required that the insurers in the united states that do business here only allow coverage -- it's a coverage issue for documented workers, undocumented workers not to be covered by workers compensation and business liability insurance, the businesses in the united states big and small would run scared. that if there was a liability attached to an undocumented worker, they could not afford to be left wide open for liability. they would therefore only hire
legal documented workers, taxpayers, thanks for c-span. >> bob thanks for the call on the democrats line. we'll go to the republican line. how to reduce unemployment and the deficit. good morning. >> caller: good morning. i would say to end the moratorium on oil, open up the natural gas pipelines again, drill for coal once again, stop closing down the steel, we're closed down 43,000 factories this year alone. i don't mean the fiscal year. the unemployment rate is just at 9.1%, and it's ridiculous for you guys not to know he's a saudi arabia. the president of the united states accepted $210 billion from the saudi arabia president in 2007. >> we'll go to virginia.
>> caller: good morning. thank you for taking my call. i feel that everyone is in the government and the president of the united states to help them. but i feel that the people of the united states also need to help the president and the government also. i'm kind of nervous. but there should be guidelines on the payment for people like on the 55. there should be guidelines for our disability requirement. >> host: okay? >> caller: also, i think it needs to be more monitored. i'm not saying that people receive in firms that they shouldn't receive, but i think there should be a type of guideline on who receives these funds and actually what they do with them. >> host: virginia, thanks for the call. linda with the story. an elephant stampede looking
ahead at 2012 presidential politics. we'll learn more tomorrow as the latest entry into the race, john huntsman, former ambassador to china, served the last two years in the obama administration. the governor of utah announces his company. live coverage, including c-span o.org and c-span radio. check it all out on the page for politics on c-span.org/campaign 2012. bill has this from the twitter page. congress has spent so much money, we have no room to hedge debt to support people's needs while trying to spur jobs. send us an e-mail at email@example.com. good morning, gwynn. >> caller: good morning. what i was interested in you
always cover the republican conventions, all of them. no matter what type it is. i wanted to know did you cover the democratic convention that was going on? is it online? or what? because i've -- do you -- you know, i don't understand why you don't corr -- cover all of the democratic conventions. >> host: are you talking about netroots? >> caller: yes. >> host: we cover that as well. >> caller: you didn't mention where to find it. over the weekend it was all republican, you didn't have democratic coverage. >> host: we did cover. it's on the web site. you can get scheduling. i wasn't here over the weekend. i don't know when we aired that. we were there covering that as well. >> caller: i checked all day. >> host: it will be airing. i can promise you that. >> caller: thanks for calling. >> host: ron from new jersey, good morning, go ahead please. >> caller: good morning. i wanted to talk about the
topic, specifically about the debt and unemployment. as far as unemployment is concerned, i think that related to two major items, one is we allow a large corporations in the country to incorporate themselves as a country and yet gain a major tax benefit by being taxed at very low rates and yet they also ship the jobs out of the country by shutting the factories and other countries that are very friendly to them. and sending the goods in this country cheap. and therefore effecting the trade balance negatively. and i think we also should have something similar to taxation system to europe which is a bad system. i don't think we should tax people's income beyond a certain point. i think we should do is tax people's buying a product. because people have more money are going to buy more expensive products and therefore it's a
more equitable system. >> host: okay. another e-mail. >> host: over the weekend on the sunday morning show "state of the nation" and on the program is david axelrod. and they talked about the 9.1% unemployment rate. >> first of all, i don't think the unemployment rate will be a %. -- 9%. i don't think there's an magic -- i'm not an economist. i believe we will make improvement just as we made we were 10.2, down to 9. i think that it will go down. i don't think that's the fundamental issue. the fundamental issue is how do people feel? do they feel like they are moving in the right direction and feel like the person on the other side of the ballot would
hold out greater hope. i'm very confident that we will be in the right place. >> host: david axelrod making his comments. next is andy joining us from san diego. republican line the issue reducing unemployment and reducing the deficit. how do you do both? good morning? >> caller: yes, i called the white house comment line about two weeks ago and suggested as far as unemployment that we increase demands, and the little example i gave, why not have the first family buy a small robot, for example. something like computers and cell phones that everybody would want to have. as far as reducing the deficit, we have to cut spending in both entitlements and defense and at the same time, we have to raise taxes. >> thanks for the call again. look at the unemployment rate other the years from 1940
through 2004 which went on average from 14% back in 1940 down to just 1% during the height of world war ii in 1944, more recently with ronald reagan at 7.2%. when he was seeking, he did win by nearly 20% of the vote in 1992, the unemployment rate was 7.4%. george herbert walker bush losing his reelection effort and during the clinton and bush years, unemployment around 5.4%. next is victor from canton, ohio. welcome to the conversation. >> caller: how are you? >> host: fine, thank you. >> caller: let's talk about the multimillions of dollars going to pakistan. also the multimillions of dollars going to places like yemen and other countries around the world that harbor or enemies that we are losing soldiers in the field over. that's a huge amount of money taking from the deficit, compounded with the interest that would be acquired if that
money were not put into the -- towards the deficit. they are not going to stop giving that money. secondly, they say it was around 12 million illegal immigrant. two mmm of -- million of them working. my grandfather came over 1910 in italy, joined the army, has discharge papers signed by lieutenant eisenhower, who went on to become a great president here. if you want to work and live here, you should go the route that all of those who fought and sweat and broke their bones to get that membership we'll call it as a citizen of the united states of america. that's two million jobs that could be added. stop giving money away and deal with the illegal immigrant stuff and do it the right way and get the guy who's running the justice department now out of there. one more thing, on health care,
they could legalize abortion if they would have them present all of the information that lands the medical journal has on abortion/breast cancer -- >> host: okay. we'll stop at that point. organized labor is not reaping the rewards. labor needs to negotiate for shorter hours and more new hires in lieu of more money. from susan page, today's story page 2a, economic strategy uniting the gop which is one the reasons. she writes --
>> host: also we heard from senator mcconnell earlier on "face the nation" at the short m increase. pointing out if a deal doesn't include significant entitlement changes, legislation raising the bar for just a few months is likely. angie joining us from montgomery, alabama, democrats line, good morning. >> caller: good morning. i'm willing to make a few comments. first of all, everybody is trying to blame president obama for everything that's going on. he's trying to fix it and republicans voted no on every bill they brought forward. then they control of the house, they haven't brought one dollar bill forward to help anybody. i don't understand why the
people are voting for these people. they are like the mafia. whatever one is for, they all are for. they go around talking about how we are trying to do this, bring jobs, get in office, every bill that they pass is not for us. people have to understand the democrats are trying to use your money to help you. republicans are trying to use your money to help themselves and corporations and other rich people. so when 2012 comes, if you get a republican president, you can say good-bye to your medicaid, good-bye to your social security, and good-bye to the medicare. that's all i want to say. >> thank you, another viewer on the twitter page, we can reduce unemployment and the debt by growing the economy with public investments and by rewarding businesses for hiring u.s. citizens. politico and also available online, democrats eyeing a new piece for job agenda. they are worried that the
increasingly dim economic outlook will cost them their seats in 2012, trying to aim at job creation. there's no shortage of ideas on what plans could increase to increased infrastructure spending, democrats have not settled on the details has to whether to craft one large package or push through a series of narrow issues. next is jessica from orange county, california. republican line, good morning. >> caller: hi, i'm jessica. i'm from orange county, california. i'm actually samoan and mexican from my mom is from texas. and i just want to say i'm really disappointed in obama and what's been going on with the jobs. my dad is a machinist in california and he's losing a lot of jobs. going to china. so this is -- i mean obviously this is, you know, -- this is the affecting our family.
and what's going on -- i don't know what to say anymore. like i just want to say that i'm disappointing in obama. period. >> host: jessica, how old are you? if i may ask. >> caller: i'm 33. >> host: you are calling on republican, did you vote for the president or john mccain? >> caller: i voted for mccain. >> host: okay. thank you very much for the call. viewer from illinois has had point. nehro failed, rome burned. send us your e-mail comments or journals. greg is joining us from huntsville, alabama. good morning, independent line. >> caller: hi. good morning. how are you? >> host: fine. thank you. >> caller: i wanted to let people know i'm in the restaurant industry.
i has been for 22 years. since 1981, the $2.13 an hour wage has been set. it has not changed. and if you are a server in this country, you do -- you are compensated by your tips. and you get taxed on that. you get taxed on your, you know, you have the tipout and everything. we are getting a hit right here. just because people aren't tipping as much. they are tipping $3 on $30. and it's not -- it's a really hard industry to get into, but you've got so many people that are losing their jobs and coming back to what they did in college. as a career bartender and server, you are not getting the compensation that you are used to getting. there's a hit right there. and people don't realize that. i understand that you want to go out to eat, but i can't afford to go out to eat and i work in the restaurant. >> okay. thank you. thanks for the call from
huntsville, alabama. one of our regular twitter followers has this point. the only solution is the growth of the economy and that requires less government, not more. we need to be savers and investors. meanwhile, the story that's playing out overseas from the front page of the guardian. >> host: this story inside "the new york times" -- >> host: al pointing out when the euro became the currency ten years ago, it was seated by reporters as a grand opportunity, turning a historic page with innovation. now with the euro --
>> host: and inside the "washington post" is a story about spain's financial problems which has prompted a series of protest over the weekend. >> you can see the segment in it's entirety on our web site at c-span.org. we are leaving it here to go live now to the senate. they will gavel in in just a moment to morning business. that means general speeches until 5:00 this morning. no votes are expected in the senate today. on the agenda this week, a vote on a judicial nomination in oregon. also debate and final passage of the nominations of leon panetta to be defense secretary. also work on a bill reauthorizing economic development programs. live coverage now of the u.s. senate here on c-span2.
the presiding officer: the senate will come to order. the chaplain dr. barry black will lead the senate in prayer. the chaplain: let us pray. o god of time and eternity, you made us. bring our wandering hearts under your control. infuse within our lawmakers a love for you that will make their obedience willing and glad.
enable them to turn from every thought, word and deed that violates righteousness. help them to manifest ethical fitness in their private and public lives, making integrity the hallmark of their characters. let right living begin with them. as they resolve to labor for peace and justice and to be good stewards of your gifts. we pray in your strong name. amen. the presiding officer: please join me in reciting the pledge of allegiance to the flag. i pledge allegiance
to the flag of the united states of america, and to the republic for which it stands, one nation under god, indivisible, with liberty and justice for all. the presiding officer: the clerk will read a communication to the senate. the clerk: washington, d.c., june 20, 2011. to the senate: under the provisions of rule 1, paragraph 3, of the standing rules of the senate, i hereby appoint the honorable richard blumentha, a senator from the state of connecticut, to perform the duties of the chair. signed: daniel k. inouye, president pro tempore. mr. reid: mr. president? the presiding officer: the majority leader. mr. reid: following any leader remarks, the senate will be in a period of morning business. senators will be allowed to speak for up to ten minutes each. there will be no roll call votes today. the next roll call will be at
about noon tomorrow, in confirmation of the simon nomination. further, following the weekly caucus meetings on tuesday, the senate should expect up to three additional roll call votes on confirmation of the panetta nomination, cloture on the economic development act. if cloture is not invoked, cloture on the motion to proceed to the presidential appointment efficiency and streamlining act. mr. president, this congress convened in january with a single mandate from the american people, create jobs. so democrats have brought to the senate floor bill after bill aimed at helping american business innovate, grow and hire. these were good pieces of legislation with proven track records of creating jobs. take the latest, economics development and administration reauthorization. since 1965, the e.d.a. has created jobs in economically distressed communities all over america. creating good jobs in places where they need them like nevada, california, florida and
many other places. this should be a goal we can all agree on. in the last five years, the economic development administration has created 314,000 jobs. it has done it efficiently, too. for every dollar the federal government invests, private industry invests $7. in 45 years then the e.d.a. has worked with businesses and universities at the local level to create jobs from the ground up. even when republicans control the white house, even when they controlled congress, even when they controlled both, the e.d.a. was there helping businesses grow. today our economy neadz jobs more than ever, yet republicans have found new ways to kill pieces of legislation that would put americans back to work. they have stood here on the senate floor to talk with straight faces about job creation, and then they have turned around and bogged down good job-creating legislation with amendments that would kill the most bipartisan bill.
yet americans wait and wait. they wait while republicans filibuster, not with words but with amendments. a bill that has created 314,000 jobs in the last five years, they filibustered it. one would think these must be important amendments. republicans are willing to make americans whole, standing in employment lines wait longer and longer. but you be the judge. our republican friends are holding up proven job creators to exempt a sand dune livered from the endangered species act. lest the livered be singled out, there is an amendment to exempt the lesser prairie chicken, too. this sends the message that such frivolous amendments, more than 90 of them, are more important than putting people back to work. here are some of the amendments they filed. e.p.a. water quality standards, light bulbs, right to work laws, the estate tax, repeal of wall street reform, united
states-mexico border fence. and yet, again, a handful of these amendments would delay or repeal health care reform. none of them, mr. president, are germane to the legislation before us. my staff looked through all these and they found one arguably is germane, and that one is one amendment that the chairman of the committee, barbara boxer, agrees to. again, they have amendments that would delay a repeal of health care reform. it's a battle republicans seem determined to fight over and over and over again, no matter how many times they lose. we have already voted on bank card swipe fees and ethanol subsidies and we have voted on the regulatory reform amendment offered once again by the senior senator from new york -- from maine, i'm sorry. yet we could not reach agreement to consider this worthy bill. this is not the first time republicans have stopped the important work of job creation in its tracks. the small business innovation research bill died here on the
senate floor because of a load of amendments, none of which related to that bill. and the f.a.a., the federal aviation administration reauthorization and patent reform bills which would have put more -- about half a million people to work languished in the house. that's where it is now, over there someplace. and still unemployed americans wait. on this bill that we're going to vote cloture on tomorrow -- or try to -- the amendments there, mr. president, are really hard to really comprehend. consumer financial protection agency need to do away with that. we repeal dodd-frank wall street reform, the oversight on wasteful spending, debt instrument transparency, amend the nlra with respect to states that have right-to-work laws, national right to work, gainful employment regulation, termination of global climate
change, permanently repeal the estate tax, substitute economic development administration, prohibit award and designation of funds to any other or entity named for a living member of congress, repeal and position of withholding of certain payments to vendors made by government entities, extension of certain outer continental shelf leases, removal of insurance moratorium for industrial banks, limit antitrust exemption, repeal davis-bacon wage requirements, prohibit printing of the congressional record, increase statutory limit on the public debt, enable states to opt out of health care reform, another one, stability oversight and council authority, inclusion of application to independent regulatory agencies, amend unfunded mandates reform act, border fence completion, major rules of the legislative tiff branch shall have -- for
approval as enacted into law, delay i implementation of health care reform legislation until final resolution of pending lawsuits. securities law amendments. rescission unobligated discretionary appropriation. reduce amounts authorized to be appropriated, prescribe fires in flint hills region, e.p.a. water quality standards, repeal bright fields demonstration program, repeal global claimant change legislation. mr. president, these are amendments that go on page after page, page after page. i have only mentioned a few of them. they have got more than 90 of them. if there were ever an example of such a tremendous waste of the senate's time and the indication that the republicans don't care anything about the american people working. i guess their bowl is let's make things as bad as we can and
hopefully the american people won't see through it and maybe we'll get somebody elected to replace president obama. what other reason could there be? people are desperate for jobs. the unemployed wait and wait and wait while this -- it would be different if they came here and offered amendments that had some relevance or germaneness to this legislation, but they don't do that. tomorrow, republicans will get another chance to help us move forward on a bill that has a proven track record of putting people to work for the amount of of $1.2 billion the last five years, we have created 314,000 jobs. why? because it's good for the private sector. for every dollar we invest, they invest seven. in the meantime, though, i urge my republican colleagues to consider the costs of these delaying tactics. mr. president, i think we can announce morning business now. the presiding officer: under the previous order, the leadership
mr. mcconnell: mr. president? the presiding officer: the republican leader. mr. mcconnell: i ask that further proceedings under the quorum call be dispensed with. the presiding officer: without objection. mr. mcconnell: mr. president, i'd like to say a few words to acknowledge the three coal miners who are trapped in a coal mine nears middleboro, kentucky. they were trapped there this morning as a result of terrible storms and flooding in the southeastern part of my state. a number of different communities have been affected by the flooding and a lot of people are working hard to help folks recover from power outages and mud slides. from what i understand, rescue efforts for the three miners are underway and the people on the ground are hopeful that they'll be able to rescue all three men. but we want them and their
families to know that we're all thinking of them as the rescue efforts continue. this is a vitally important industry in the region, and in moments like this it's appropriate that we acknowledge the danger that people who work in the coal mines subject themselves to every single day. they are a courageous and dedicated group, and we're very grateful for their work. mr. president, i suggest the absence of a quorum. the presiding officer: the clerk will call the roll. quorum call:
the presiding officer: the senator from oregon. mr. wyden: i ask unanimous consent to vacate the quorum call. the presiding officer: without objection. mr. wyden: mr. president, tomorrow the senate will vote on the confirmation of michael simon to be serve as u.s. court judge for the district of oregon. michael simon is a good and decent man, and in my home state where we have a judicial emergency by the standards of chief justice roberts, it is vitally important that michael simon be confirmed. mr. president, beginning, i want to thank chairman leahy, ranking minority member grassley, majority leader senator reid and minority leader senator mcconnell for bringing this nomination to the floor today. senator merkley and i have been proud to put forward mr. simon's name for consideration by the president. we're enthused by his subsequent nomination, and we are now
hopeful that he will soon be able to continue his service to the people of oregon in this new capacity. michael simon is both a distinguished lawyer and a legal scholar with a diverse and impressive legal career, and that career includes work as a public servant, as a litigator, a pro tempore judge and as a professor. michael simon now is a partner at the firm of parliamentary pen portland and he has worked there since 1986. after graduating suma cum laude from ucla, mr. simon attended harvard law school where he again graduated with honors cum laude. mr. simon began his legal career in the department of justice antitrust division where he served as trial attorney for five years. during his time working in washington, d.c., mr. simon also volunteered for and served as
special u.s. attorney for the eastern district of virginia, and it was through his work at the antitrust division that mr. simon made one of his most notable contributions, and that was a contribution to strengthening consumer protection law, and as the distinguished president of the senate knows from his days in connecticut as attorney general how important it is that there be public advocates for consumer rights because so often this is a field that gets shortshrift. people say they are for the rights of consumers, but these cases can be hard and time consuming to bring and that's what michael simon did and did so well. working on behalf of the department of justice on the case of united states versus american airlines, mr. simon successfully argued for extending the reach of the sherman act to include
monopolization and attempted monopolization. and in my view, this extension is one that benefits consumers each and every day across this country, and frankly, to have someone on the bench who has this kind of expertise in fighting monopolies, in protecting the rights of consumers is a very special qualification that i would simply commend to the senate as we consider the nomination of michael simon. now, throughout his work, both in the public sector and in private practice, mr. simon has been an active member of our community. in fact, i have had many conversations with him in his capacity as the immediate past president of congregation beth israel in my hometown where he constantly is the leader of the congregation reaching out to conscript volunteers for a host of projects, particularly those
that involve children. so he's engaged in extensive pro bono work, volunteered for many local nonprofit organizations. i would call him an official champion of volunteerism because when you look at some of the causes he's volunteered for at home, he has been a past board member of the waverly children's home, he has been past president and current board member of the classroom law project. you see that he consistently comes back to recognizing the importance of the well-being and security of children in our community, and that, too, is a special area of expertise and advocacy that he will bring to the bench if confirmed by the senate and another area that i would want to commend mr. simon
to the senate as we look at his candidacy this week. now, this seat has been vacant for nearly two years, and as the distinguished president of the senate knows, there is a process by which one actually determines a judicial emergency that has essentially been defined by the chief justice, justice roberts, and we clearly have such an emergency in my home state of oregon, so it is very welcome news for oregonians that we have this opportunity to have a full bench, to have all justices on deck, and it's my view that mr. simon is an outstanding nominee and i have absolutely no reservations that he will be a superior judge. i strongly urge all my colleagues to join me in supporting an exceptional
individual, a person who is fair, a person who is thoughtful, who brings years and years of expertise and a host of very important legal assignments, and i'm especially grateful that he is a resident of my hometown where he has distinguished himself with extraordinary volunteering for a whole host of causes that are important, especially the future of our children. mr. president, with that, i yield the floor and i would note the absence of -- oh, i see the distinguished chairman of the finance committee here, so let me just yield the floor at this time. a senator: mr. president, i suggest the absence of a quorum. the presiding officer: the clerk will call the roll.
the presiding officer: without objection. mr. baucus: mr. president, christopher reeves once said that a hero is an ordinary individual who finds the strength to persevere and endure in spite of overwhelming obstacles. i today want to call attention to five montana heroes. every day, folks making the super heroic effort to help their friends and neighbors. i enjoy sharing these stories, i'm proud of these stories because they tell the story of
what it is to be a montanan. with all the flooding that's going on, mr. president, in my state of montana and other states of the nation, i just want to mention it can happen mentioning the names of many montanans, many montana heroes who have been rising above and beyond the call of duty and are following christopher reeves' definition of what it means to be a hero. we in montana might say -- pride ourselves in helping our fellow neighbors. i know that's true in all states all across our country. i don't want to say it just in the state of montana, but i can say that in our state it is really special. we in montana sometimes say we're really one big small town. you know, it's a big state, but not a lot of people. we tend to know each other, the other end of the state. there is that sense of camaraderie and community which is stronger i think in my state than perhaps some others. we have severe flooding.
the jackson -- excuse me, the jefferson river, which is one of the three rivers that form the headwaters of the missouri river is over its banks at three folks, montana. the milk river -- lewis and clark traveled up the missouri and partway up the milk river -- that continues to flood into the town of glass could you. the missouri river itself is flooding. downstream, missouri flooding has been very significant. rain is also in the forecast for the rest of the week. we have record snow pack levels in our state. we have got a lot of flooding, and there is going to be more flooding. montanans all across our state continue to do all that is necessary and beyond that to help. you can see over on my left, this is the rocky boys indian reservation. it's under water for the second time in a year. that's the problem here. floods come and recede. then it rains very hard again,
melts the snow pack, record snow pack, there is flooding again. this is the rocky boys, one of the seven major indian rest reservations -- reservations in the state of montana. this is bruce sunchild, a chief of the indian tribe. a great guy. i have known him for many, many years. works around the clock to help his tribe through this emergency. for those who lost homes, they help find a place to sleep, for the sick, find a way to the hospital. he is one of the guys that really cares. he bleeds for his people there. dave dickman. dave owns a business in great falls. it's called dickman excavation. after a flooding at great falls -- this happens very often. usually it's the sun river, the sun river one of the tributaries into the missouri river, flows into the missouri. dave donated thousands of sandbags to be montana families working to protect their homes from rising waters. this is classic.
this is typical. when asked by papers why he did all this and why he is working so, so hard, he just said, you know, i know my neighbors would do the same for me if i needed a helping hand. floyd fisher, another hero, another montana hero. i have been mentioning many heroes in montana. individually and specifically by name over the last couple of weeks. this is floyd, floyd fisher. he does it all. he's a golden valley sheriff. he is also the county coroner. floyd is the county fire chief. he is also the disaster emergency services director. he works as an e.m.t. responding to ambulance calls. floyd is a busy guy. floyd cares. he likes to help people. after learning of an impending flash flood in rigate, montana, last week, he initiated the county's reverse 911 alert system. he then rushed across town, door to door with evacuation orders, and shortly thereafter two feet
of water flooded the streets. after the floods, floyd kept at it. he directed traffic away from washed out roads, he picked up a broom to clean up the super d's grocery, he provided emergency medical care. working around the clock, catching an hour or two of sleep when he could find it. if you want to understand montana, look no further than floyd. his efforts summed it up very well. last week, missoula county set up a flooding hotline to help people facing rising floodwaters. before long, the hotline received dozens of calls from volunteers who want to help. missoula's current fire chief stepped up to help. kurt has a smile on his face. he didn't have a smile on his face when helping out with the flood. he worked the united way to organize over 60 volunteers daily, make sure that sandbags were placed at key locations around missoula. worked very, very hard, 14-hour days to minimize damage from
flooding missoula. you ask any volunteer around missoula, and they will tell you that kirk, it was kirk, it was kirk who made all the difference. even down to the finest details like sunscreen, bug spray for volunteers. runoff is expected to swell again in missoula. thanks to kirk, missoula is much more ready. in lewistown, montana, john bebe's home was safe and drive but he knew his neighbors were in danger. the last three weeks, john has been sandbagging homes in lewistown who were most in danger. no one went to him for help. he just knew what was needed on his own and he headed out to provide that help. in the upper missouri river breaks in north central montana, there are a lot of cottonwood trees along the missouri. the cottonwoods need floods, they need floods to regenerate. floods along the missouri clear
away new, rich soil. high drawl gists with the bureau of land management said this year's floods could help establish a new generation of cottonwoods. the aging stands have been in danger of disappearing altogether. so like the cottonwood, montana will return from these floods stronger than ever, and that's because of hundreds of unsung heroes stepping up to help. i'm asking montanans to share their stories of ordinary folks doing extraordinary things for their friends and neighbors, whether on fb or -- on facebook or call my office. we just want to hear those inspiring stories. in closing, i want to share a humble thank you, thank you to all of montana's heroes. i don't know what we would do without you. thank you for your service. you're wonderful, you're aces. we all deeply appreciate all that you're doing. mr. president, i yield the floor and suggest the absence of a quorum. the presiding officer: the clerk
mr. kyl: mr. president? the presiding officer: the senator from arizona. mr. kyl: thank you, mr. president. i ask unanimous consent that further proceedings under the quorum call be dispensed with. officer sphe without objection. mr. kyl: thank you. mr. president, as you know, there is a great deal of discussion going on right now in different forels on whether or not to increase -- in different forums on whether or not to increase our debt limit and how we can reduce that government's spending practices so that we
won't have to keep extending the debt ceiling in the future. those conversations include a lot of focus on reducing spending in the near term and finding ways to reform some of the entitlement programs so that spending will also be reduced over the long term. because i think everyone agrees that the current way in which we spend money -- 40 cents of every dollar of which has to be borrowed -- is literally going to result in bankruptcy if we don't bring it under control. now, there are those who say, well, actually the answer is to increase revenues. meaning raise taxes. the problem with that, mr. president, is that we didn't get into this problem because we didn't tax enough. we got into the problem because we've been spending too much. the simplest way to think about it is historically we spend about 20% of the gross domestic product. under the obama budgets, we're going to be spending and almost
spend this much right now, 25% of the budget. that's not sustainable. under even the largest of deficits when president bush was president, it was less than half a trillion dollars. but under the obama budgets it is $1.5 trillion. almost exactly for every year for the last three years and on into the future. the result is that under the president, we will have doubled all of the debt that this country has accumulated from the time that george washington was president all the way through the time that george bush was president. you double that under the obama administration. the problem is spending. it's not taxes. evidence of that was presented last thursday in an op-ed piece in "the wall street journal." and at the conclusion of my rairnlings a going to ask unanimous consent -- and at the conclusion of my remarks, i'm going to ask unanimous consent that it be put in the record.
i'll quote from it or at least discuss some of the arguments in the piece right nowvment it was put together by coto institute senior foa fellow alan reynoldso is a real student of the effect of tax rates on economic growth and on revenues for the country. and one of the points that he discusses in this op-ed is what happens when you raise tax rates as some of our friends particularly on the other side of the aisle want to do as part of this deficit reduction exercise? do you necessarily increase revenues if you raise tax rates? what are the impacts on the economy? whap what happens on the other hand if you're able to reduce tax rates? there's no plan on the table to actually real estate duce tax rates, but i think the arguments that presents here make it clear that lower rates do not necessarily produce less revenue and in fact can have a psaltery impact on -- can have a sam utory impact on job creation
which is what we're trying to be all about here. he has studied tax rates for the last six decke decades and heres some of the factual in fact that he comes out with. and the conclusion is this: higher tax rates do not necessarily lead to more reven revenue. recent history has often shown just the opposite. here are some specific examples. back when the highest tax rate in this country was 91% -- if you can just think about that -- 91% tax rate, why would anyone work to make that last dollar when 91 cents goes to uncle sam? but in any event that was the highest tax raivment the lowest tax rate was 20%. now today the lowest tax rate is zero. the next one 10%, then 15%, so on. this was a much more progressive tax code. individual income tax revenues was 7.7% of the gross domestic product.
president kennedy came along and proposed cutting both the highest and the lowest rates. they went from 91 down to 7 op and from -- and from 20 to*% to 17%. what happened to the 7.7% revenue? they rose. the rates were reduced but the revenue to the treasury was increased. what happened a few years later when that was done, when president reagan cut the top rate from 70% to 50%? did revenues go up? no. revenues rose. reduced taxes. revenues to the government rose. when the top rate was slashed again from 50% down to 28%, almost in half, well, you'd think revenues would really decline. no. they remained almost exactly the
same, 8.1%. from 8.3% to 8.1%. his research clearly demonstrates that the link between lower rates and lower revenues is very weak, if not actually a converse relationship. the relationship between higher taxes and economic difficulty could not be more clear. let's talk about what happens when you have increases in the tax rates. when in the early 1990's, under the clinton administration, the top rate was increased to 31%, which, by the way, is more comparable to about 35% in today's dollars because of hidden taxes, the country quickly fell into a recession and revenues actually dropped to just 7.8% of g.d.p. so you think you're going to raise more revenue and reduce the deficit by raising tax rates? wrong. we raise taxes, revenues actually dropped, and the country went into a depression.
when the top two tax rates were raised later to 36% and 39.6% and taxes on social security increased as a part of the clinton tax heights, revenues again barely moved. 8%. from 7.8% to 8%. the government actually collected more tax revenue when the top tax rate was 28%. so it's simply not true that you can raise tax rates and, therefore, get more revenue to the treasury and, therefore, reduce the debt and the deficit. it's especially not true if you're only talking about doing that for the highest tax earners because they don't make enough to reduce the deficit that. to be sure, there are always fluctuations and there is not a specific causal relationship in all cases between rates and revenues collected. for example, during the technology bubble of the 1990's, revenues rose above 9%. we were really on a roll.
people made more money. the government made more money as a result. but interestingly enough, this was only after capital gains taxes were cut from 28% down to 20%. there is almost a direct relationship between, or inverse relationship, i should say between the capital gains tax rate and revenues collected. as that rate goes up, less revenue is collected. as the rate comes down, more revenue is collected because it is a tax on economic activity. and the lower the tax, the more economic activity you have. and, therefore, the more the federal government receives in revenues even though the rate is lower. reynolds found a similar correlation between rates and revenues with capital gains as he identified with ordinary income taxes. just a couple of other statistics here e. when the capital gains rate was 28%, revenues were 2.5% of the g.d.p. after the rate was cut down to 20%, capital gains revenues rose
to 4.6% of g.d.p. so you cut the tax rate and the revenues almost double. as i said, capital gains are the most sensitive to rate reductions orate increases of -- or rate increases of all of our tax rates. nonetheless, it is an impressive figure to demonstrate that at least you don't want to be raising tax rates even if you're not willing to reduce them. after both ordinary income and capital gains tax rates were cut in 2003, individual income tax revenues were 8.1% of g.d.p., which was higher than the period when the ordinary income tax rate was 39.6% and capital gains rate was 28%. so, almost no matter how you look at it, you can see this relationship. and it's almost an inverse relationship. again, i'm not claiming that all tax cuts pay for themselves or that in all cases this is exactly the way it works out.
but to assume that we can solve part of our problem by raising tax rates and especially raising them on the people who are most able to move income around to avoid paying taxes or minimize their tax rates, i should say, and who are the most susceptible to the capital gains rates and who are the people most able to invest in business and, therefore, help to create jobs, to suggest that reducing or -- excuse me -- increasing their tax rates is a good idea is obviously not true based upon the research that mr. reynolds has done. bottom line: lower tax rates do not necessarily mean less revenue. higher rates do not always mean more revenue. and the facts frequently point to just the opposite. there's obviously more to consider here than just how much revenue will be raised. unfortunately, higher tax rates also have a very pernicious
effect on economic growth and job creation. and reynolds research in this area is very clear as well. when surtaxes were imposed in our economy back in 1969 and 1970, our economy fell into one of the deepest recessions we've had until the one we're in right now. during the bracket creep of the 1980-1981 period, when inflation forced taxpayers to pay higher rates, until that was fixed later, the economy again fell into a recession. and following the rate increases of 1990, the economy fell into a recession. so it's pretty clear that higher taxes are the last thing that you need to do or want to do during a time of persistently high unemployment and struggling economy as we have today. yet, as i said, there are some members of congress and the administration who have proposed raising tax rates as a way to address the deficit. i even saw an academic -- read that an academic proposed a 70%
rate, and one witness with before the senate finance committee, believe it or not, even suggested that a tax rate of 90% would maximize revenue. to show you just how counterintuitive that is, let me just ask a question. what two tax rates produce zero revenue? well, the answer is zero, of course. and 100%. if you're going to tax 100% of what somebody makes, he's not going to bother to make the money. it doesn't do him any good. and it doesn't do him much good if he only gets to save a dime out of a dollar that he makes if the government takes 90%. so it's just not true that sticking the rich with a very high tax rate is going to bring in more revenues to the government. those people don't have to make the money. they can shift it around so they can minimize their tax burden. even what he will that does is put an even greater burden on the rest of us. it puts a greater burden on middle americans who aren't that wealthy, who can't move their
money around, who have to take it and spend to to support their families, send their kids to school, for health costs or whatever it might be. that's just why you cannot solve this problem by raising taxes. you've got to focus on the side where all of the growth has been, which is increased spending. at the end of the day, mr. president, the american people believe that wasteful washington spending has got to stop. and that's why they're saying to many of us don't raise the debt ceiling, at least until you've made sure that we're not going to have to keep doing this in the future because spending keeps going up. let's have a down payment on significant savings now. let's set the budget numbers for the next ten years so that they actually represent a reduction in spending, not an increase. let's have entitlement reform that shows even after that ten years the expenses will continue to, if not fall, at least rise
less quickly so that our economic growth can manage any increase in costs. and let's do that such a way that we absolutely put constraints on congress and the president. we put us in a straitjacket so to speak so, that we can't create exceptions and waivers and get around it in other ways. unless we do those things, i don't think most of the people on my side of the aisle are going to have an appetite for increasing the debt ceiling. i know i'm not. and i'm going to look at the historical evidence that people like alan reynolds points out to us here, the evidence that clearly shows that higher tax rates do not necessarily translate into higher revenues. in fact, in many of the cases it's precisely the opposite t. it's why beyond the obvious economic costs it's foolish to propose higher rates as a solution to our fiscal crisis. mr. president, i ask unanimous consent that the "wall street journal" op-ed that i mentioned be inserted in the record at the
was about ten years ago that i received a call to my office in chicago from a korean-american mother who was concerned about her daughter. her daughter had been brought to the united states at the age of 2, had grown up in the united states. all her brothers and sisters were born here as well. and her daughter had been accepted on a music scholarship. it turns out she was an extraordinarily talented concert pianist. and she was graduating from high school, and she had been accepted at juilliard school of music in the manhattan observatory school of music. and in filling out the application, there was a question about her daughter's citizenship. since she brought her daughter here on a visi visitor's visas t that at the age of 2 and never filed any papers, she wanted to know her daughter's status. her daughter's status was very clear. she was undocumented.
the law was also clear that. this 18-year-old girl was told she had to leave america. there was no recourse. and should i wasn't even being sent back to korea because the family had transited from korea to brazil to the united states. they wanted to ship her to brazil, a country she was not even aware of and a language she didn't speak -- portuguese. and in that situation her mother said, what can we do? and i checked with the law and it turned out there was no place to turn. her daughter was without a country. that's when i introduced the dream act. it is legislation that says, if you came to the united states as a child, if you have been a long-term resident of the united states, you have good moral character and you graduate from high school, we'll give you two chances to become legal in america. you can either enlist in our
military or you can finish at least two years of college. that was ten years ago, mr. president. i'm still working to pass that legislation. and over the period of time that i've worked on it i've met hundreds, maybe more, of people just like that young girl i just described. they are young people who have that kind of exciting look in their eyes that they want to be part of this world. most of them are college students or college graduates. but they can't make the first move toward the life that they want to live because they are undocumented. and that's why i continue to come to the floor of the senate each week and tell their stori stories, urging my colleagues on both sides of the aisle that in the name of justice give these kids a chance. we have a pretty basic principle in america. we don't hold kids responsible for the wrongdoing of their parents.
we tell kids, you're responsible for your own life. do the right thing. go to school. don't give them trouble. study -- don't get in trouble. study. aspiring to greatness. go to college. and they do. and these kids do, too. but they have an obstacle that most children in america don't have: they have no country. senator menendez of new jersey, had a great statement and i use it many times. he tells of these young people getting up every day in the classroom, putting their hands to their heart and pledging to the flag of the united states of america, sing the only national anthem they know and in the eyes of the law, in the eyes of america, they are not part of us. they are somewhere in the middle. is that right? is it fair? is it a standard that we want to establish in this country when it comes to justice? i don't think so.
we need these young people. they're not only bright and energetic. they can become tomorrow's leaders in our military. that's why secretary robert gates, who is retiring this month as department of defense secretary, supports this legislation. that's why so many others have stepped up in both political parties and said, this is a smart thing to do. give these young people a chance to prove themselves. scwhrus a discussion in my office about h-1b visas. these are visas that we offer to forns, people who weren't born in the united states, to come here and work because we need their talent pool to be part of an expanding american economy. what about the talent pool of these dream act students? as i've told their stories on the floor, these are students who are extraordinary, chemical engineers, mechanical engineers, teachers, aspiring attorneys, but new england can't do any of those -- but they can't do any
of those things because they have no citizenship status in america. i want to share the story of two of them. i know that senator menendez ask on the floor and this won't take long. the first is diana banda. this is her photo. diana was brought to the united states in 1993 at the age of 3. she grew up in oregon and dreamed of being a first responder. she volunteered with the american red cross and her community response team. during her senior year in high school, she was diagnosed with thyroid cancer. thankfully, after a long, long struggle, she is cancer-free. after her recovery, diana is more determined than ever to pursue their dream. she has enrolled in the firefighterring program in sail em, oregon. for the record, these students equal file for no federal assistance. when they go to clernlings they pay for tout of their pockets. they sacrifice more than many students because they're
determined to get an education. diana sent me a letter. this is what she said about her dreams four the future. "although i love mexico because it is the place i was born, i could not pack my things and move back to a place i know nothing about. a place i only know through old baby pictures and family stories. america is my home," diana says. "this is the place i love, where everyone and everything i know is. i know nothing outside the united states. whatever punishment i must pay, i am willing to do. all i ask for is a chance. better yet, i beg for a chance to prove that i'm not a criminal, that i have much to offer this beautiful country." so should we deport diana banda, a cancer survivor, a future paramedic back to mexico, a country she left behind when she was just a toddler? should we accept her invitation to punish her?
for what? for being part of a family that brought her here at the age of three? it wasn't her decision. it was her parents' decision. rightly or wrongly, she's here in the united states. and when you playbook at this photo and realize she could be part of our future, you realize what the dream act is all about. let me introduce to you another dreamer. this is nonge dolan. mange's parents brought him here from bangladesh in 1991 at the age of five. as he grew up in his new home, he immersed himself in the study of computers and technology. mange wrote me a lower. "for as long as i can rerks i have had an intense passion for technology. in middle school that passion led to spending many nights constructing remote-control model airplanes and vander graph havgenerators.
i spent my senior year creating an online up in for my school." he didn't know about his immigration stawlts until he started applying for colleges. he asked for his parents, what he should say in terms of his immigration status. and that's when he learned that he was undocumented. in 2008, mange graduated from the university of north carolina at chapel hill, an outstanding school, and again let me put in the record, these students that graduate from college do it facing sacrifices many students don't. they get no federal assistance, none. mange's prospects are i want willed. even though he graduated from the university of north carolina, chapel hill, an outstanding school, and he's being courted by the technology industry, they want to hire this bright young man, he's even been offered a job as a lead engineer for a start-up company in silicon valley, mange's prospects, of course, are constricted because of his immigration status.
the dream act would give him a chance to pursue his dreams and contribute his talent to the only kins a ever called home. here's what he told me. i've turned down several great job offers from reputable companies because of my status. the dream act would let me take my passion for technology to the next level by allowing me notify silicon valley and pursue my dream as an internet entrepreneur. mr. president, when you look at some of the most amazing technologies in america today, you will find that many, many times it is a product of immigrants. who came to this country and created companies that employ thousands of people. i don't know if mange will be one of those persons. i think he deserves a chance. would america be better off if we sent him back to bank la derks a country he hasn't been to in 20 years? of course not. there's so much discussion in the day about america's economic future in the 21st century. every year with all those h-1b
visas we bring in talented people from overseas while at the same time our laws banish these talented people that i've just talked about back to countries they never have known of, as they've grown up. we could use people with mange's talents in america. we can use them in technology, as we can use diana in the field of medicine. i first introduced this bill ten years ago. since then i have met so many immigrant students who would qualify. like diana banda and mange dolan, they are willing to serve our country, even risk their lives for our country, if we could just give them a chance. i urge my colleagues in this political town, in partisan town, on this issue, let's put it aside. let's support basic justice and fairness. let's give these kids a chance.
i'm willing to stake my reputation as a united states senator on the fact that the country will be a better place when the dream act becomes law. mr. president, i yield the floor. a senator: mr. president? the presiding officer: the senator from new jersey. mr. menendez: mr. president, first of all, i didn't come to the floor for this purpose, but i would be remiss if i didn't thank the distinguished senator from illinois, the democratic whip, for his incredible commitment and passion to this issue. i've seen him just about every session take out time every day to both dramatize and put a human face on this opportunity to turn some of america's greatest prospects into opportunity prosperity for this entire country. and i am thrilled that he has adopted various of my lines, and i'm honored by it.
but it is true, these young people came to this country through no choice of their oefpblt the only -- their own. the only country they have known is the united states of america. they put their hand on their heart and pledge allegiance to the united states, the only national anthem they have ever learned to sing or believe in is ""the star-spangled banner"." and we have a tremendous opportunity. i want to thank the distinguished senator for his incredible commitment to this, and i appreciate it very much. i've to the floor, mr. president, to talk about something else that i very passionately believe in, and that is my view in support of a significant and sustained reduction of american combat forces in afghanistan beginning this july. in short, mr. president, i believe the time has come to move from a strategy of counterinsurgency to one of counterterrorism, a strategy that would rely on our
specialized military forces to continue to engage those who present a real and continued threat to the national security of the united states, one that would allow us to bring home a majority of troops serving in afghanistan. now, after september 11, almost a decade ago, we were clearly justified in intervening in afghanistan to defeat al qaeda and bring bin laden to justice for the atrocities they committed against americans on our own soil. and i supported president bush at that time in that effort. i have a standard, if i'm willing to send my son and daughter to fight for america on behalf of the nation's national security interests, i'll vote to send anyone else's sons and daughters. unlike iraq, where i did not believe it was in the national security interest of the united states, and if i won't send my
son and daughter, i won't vote to send anyone else's sons or daughters. but in afghanistan nearly a decade ago, that's where the perpetrators of september 11 were. it was the right engagement. but our original goals have largely been met in that respect, and today, even according to director of the c.i.a., fewer than 100 members of al qaeda remain in afghanistan. since september 11, we are painfully aware that the world is a different place, and we will always have to be vigilant. but the current threat simply does not justify the presence of 100,000 american troops on the ground. bin laden is dead, having hidden for years in pakistan in plain view of the i.s.i., pakistan's intelligence force, and the pakistani military, clearly the issue at hand is about terrorism, not insurgency.
terrorism is a borderless issue represented by the unimpeded movement of the taliban into pakistan and a safe haven in abbottabad for al qaeda's leader. in finding bin laden and bringing him to justice, we have struck a serious blow to al qaeda's network that permits to us now reconsider our mission and the wisdom of pursuing a broad and open-ended strategy of nation-building in afghanistan, because make no mistake about it, what we are doing in afghanistan is nation building. and it's interesting, i have heard speeches on the senate floor and in my previous service in the house about how we should not be nation building by many of my colleagues on the other side of the aisle, that's not a vital national interest. that's exactly what we are doing here. and the cost of our current strategy is too high in lives lost, in futures unraveled by
injury and in taxpayer dollars spent. 1,500 brave men and women have lost their lives in afghanistan. almost 12,000 have been wounded in action at a cost, a continuing cost of $10 billion a month. a month. nonmilitary contributions to afghan reinstruction and development from 2002 to 2010 have reached $19 billion, a number which is expected to surge as we transition to a civilian mission. but at the same time reports from the senate foreign relations committee, of which i sit on, and from the bipartisan commission on wartime contracting in iraq and afghanistan placed our billions of dollars in investment at risk of failing and to disrepair because of inadequate planning
to pay for the ongoing operations and maintenance, not to tphaepbgs from my own -- not to mention that from my own perspective, mr. president, $19 billion later, i don't know what we've really achieved in afghanistan. and in my mind, not only are the costs and lives and treasure far too high, but there is a growing consensus that absent a very long and sustained commitment involving many troops on the ground, we can't win the hearts and mind of the afghan people. or for that fact, even president karzai, who in my view has not proven to be a good partner, karzai most recently suggested that the united states and nato forces risk becoming an occupying force that would be, in his words, ousted from the country. all these lives later, american troops lost, to do what? to have a counterinsurgency effort, which is what?
fighting insurge toepbts give the -- insurgents to give the afghan government the opportunity to sustain itself, to govern itself, and we are an occupying force? we are an occupying force? we have to ask, mr. president, even if we are willing to make the enormous economic commitment required to build a democracy and to fund the necessary security elements at the cost of tens of billions of dollars per year, what is the likelihood of our success? the afghan government is corrupt. our working relationship with president karzai continues to be challenged. today, i believe, he made some other comments, either today or yesterday, again that malign the very nation that is there defending them with the sons and daughters of america, with the national treasury of america narcotics country that, by the -- national treasury of
america, in a country that by the way has $1 trillion of various deposits of various minerals that if properly pursued would be able to fund the afghan nation for years to come. and when this gave out their first contract, who did they give it to? not the nation that has defended them, but the chinese, who have done nothing to stand up for the afghan people. so i look at a government that's corrupt, our working relationship with karzai crumbling, our forces on building security forced challenged because its membership largely excludes postoons in the south, which is the base for the taliban. and i'm not sure there is any amount of money or a plan that can work under those circumstances. it seems to me, mr. president, for every taliban fighter we kill, buy off, or convert, another one will take his place, and more and more will stand up to fight an enemy that is
perceived as infidels. i am not certain a counterinsurgency strategy is anything but counterproductive. it is clear to me that the present course is unsustainable, creates dependency, breeds corruption and ignores the fact that at some point afghanistan will have to stand on its own, on its trillions of dollars in mineral deposits and build its own future. we are spending $10 billion a month on a counterinsurgency strategy in afghanistan that does not have a clear path to a definable victory. i am not certain a counterinsurgency strategy in afghanistan does anything but feed and grow the insurgency. in short, i am not certain a counterinsurgency strategy is a winnable strategy. therefore, it is my belief that we need a tailored
counterterrorism strategy to achieve and protect our national security interests and that meet our broader fiduciary responsibilities. since 2001, we have invested over $50 billion to help stand up a central government in kabul and fund reinstruction projects across afghanistan. $26 billion has gone to standing up the afghan security forces, including an additional $11 billion this year. to date, the afghan national army now stands at 164,000 men and the afghan national police force at 126,000. so combine the afghan national security forces now stand at 290,000 men strong. we can't forever be the
overprotective parent. the time has come to allow afghans to secure their own future, to draw on the 290,000 men who have committed to securing their country's future and to allow them the opportunity to defend their nation and their people. the fact is afghanistan is a rugged multifaceted country with a long history of complex tribal relationships, that faces almost unprecedented challenges in building a vibrant, independent and hopefully democratic nation from the rubble of more than a quarter century of war. we can guide a process to provide necessary achievable and sustainable assistance to bolster their efforts, and we should. but it is up to the afghan people to stand up a government and a security force and to develop their own counterinsurgency effort. our primary goal, the goal that was crystal clear on september
12, 2001, was to address the imminent terrorist threat to america and america's interests. the phrase was -- quote -- "to drain the swamp and address the new threats we face." close quote. the taliban are a threat, but they are not the threat that we rallied to address. any counterterrorism strategy we employ now can necessarily deal with any taliban issues that would be a threat to american security. but the primary threat to america and to american interests is posed by al qaeda. it is a threat that is stateless, borderless, and the notion that if we deploy enough forces in afghanistan, we will somehow lessen that threat, in my view, falls under the conventional washington wisdom that more is better. in my view, mr. president, better is better. a mission better focused on the threats with specialized troops
better trained to better locate and destroy terrorist hideouts, a mission with resources better spent on projects that are necessary, achievable and sustainable. in short, we need a better -- not a bigger -- mission. in my view, mr. president, we must accelerate the transfer of nation-building and nation-protecting to the afghan people and their government. we must remain ever vigilant and ever prepared to protect our national security interests and eliminate any new terrorist threats that emerge. we should continue to identify areas where our advice and assistance can strengthen the afghan government and the institutions of democracy. but our mission should be one of counterterrorism, not counterinsurgency. we need to concentrate our resources on the real threats in the region, threats to u.s. citizens and u.s. interests and threats that could destabilize pakistan and place nuclear materials at risk, which would
be a very real and present threat to national security and the security of the region, a threat we cannot abide. we entered afghanistan to address a threat vital to the national security of our country. by reforming our mission, targeting our unique military resources, and refining our assistance mission to focus on sustainable and achievable outcomes, we can achieve that goal with fewer troops and less